Article 98.1 f) of Spanish Special Tax Act 38 of 28 December 1992 provides for a reduction of 85% in the Special Electricity Tax base for organisations that engage in “industrial activities” and whose electricity procurement or consumption accounts for at least 5% of their production costs, including variations in inventory.
The Spanish Tax Authorities have in the past understood that this 85% reduction could only be applied to companies that were registered under the business categories corresponding to industrial activities liable for Business Tax (Impuesto sobre Actividades Económicas, “IAE”), and specifically the activities listed in section one, subsections 1 to 4 of the relevant tax bands.
This restrictive application meant that many businesses that actually engaged in industrial activities but were not liable for Business Tax, even though they met the requirement with regard to their energy consumption representing at least 5% of their production costs, were not able to apply this 85% reduction.
In its judgment of 17 April 2024, the Spanish Supreme Court rejected the restrictive interpretation of the term “Industrial Activity” that had been applied by the Tax Authorities and ruled that this term was defined in Article 3 of the Spanish Industry Act, which understood “industry” to mean activities involving the acquisition, repair, maintenance, transformation or re-use of industrial products, wrapping and packaging, and the beneficial use, recovery and elimination of waste or secondary products, regardless of the nature of the resources and technical processes used.
As a result, any companies whose activities placed them within the definition of “Industrial Activity” according to the criteria set out by the Supreme Court, regardless of the business category under which they were registered for Business Tax, could apply the tax benefit so long as they met the remaining requirements set out in the Special Tax Act.
If your company wishes to know whether it meets all the requirements necessary to be able to apply this tax benefit, Ventura Garcés would be pleased to offer its legal and tax advisory services in this regard.
